When you’re financing a home with a loan, it is likely that your payments will change at certain times during the life of the mortgage. You can blame the changes in taxes, association fees, and insurance premiums for such fluctuations, but it is also probably because of the fact that you have an adjustable-rate mortgage (ARM).
How the Rates Fluctuate
If it is the latter, it is important to keep in mind that the rates on ARMs don’t fluctuate annually. Such loans have adjustment periods, which determine when and how the rates can change. Rates usually fluctuate after the initial period or the time where the rates remain fixed. The initial period can last for several months or even years. Salt Lake City mortgage companies note that when this period is over, the rate will adjust.
Increase in Rates and Payments
If you have an ARM or are considering getting one, note that the greatest volatility happens when the index rate increases. This is because it can also increase your monthly payment. If this happens, it is ideal to set aside about an additional $50 to $75 every month. It is also a good idea to save some money during the initial period, so you can be prepared when the adjustment happens.
Smaller Payments When Rates Fall
There is also a possibility that your monthly payment could get smaller if the prevailing rates fall. This will never happen with a fixed-rate mortgage, which has an interest rate and a payment that would never change throughout the term of the loan.
Rates and Caps
Adjustable-rate mortgages can also have different types of rate and payment caps. These limit the increase on your loan rate and the payment size. The interest rate caps dictate how much the rate can fluctuate, while the rate caps tell how much the payment can change every time the rate adjusts. It is best to ask your lender about the associated risks and how much your monthly payment could be.
Every type of loan has its pros and cons. If you decide to go with an ARM, be sure to familiarize yourself with this mortgage by doing some research or talking to a reliable lender.